February 27, 2007

On Second Thought

By Carl Goldstein

(Following previous post). And how odd. Thinking back to China's first halting steps in the modern international community. Back in the seventies and even into the eighties, when the Canton Trade Fair was the country's primary external trade venue.

Back when the crossover into China meant walking across the wooden bridge at Shenzhen, stiff sentries of the People's Liberation Army staring impassively, overhanging razor wire on the border fence. Pausing for noodles and overly sweet-sour pork while awaiting the on-going Shenzhen to Canton (Guangzhou) express, those white-seat covers and soft-class seats.

I always stared intently at the villages and river scenes passing before my eyes on the 2-hr run up to Guangzhou. Wondering about how China's class wars played out even in the villages near Hongkong.

The Friendship Store was a major part of most foreign residents' live, like it or not, and an attractant to materially-starved Chinese. Often they were people who had relatives abroad, who were better educated and had aspirations of getting themselves or their cildren out of China.

Getting too close to Chinese friends or co-workers -- more than one visit to the other's home -- gave rise to warnings from unit Party secretaries. Thus friendships or other relationships were sometimes fraught with uncertain motives on one or the other. When someone asked me to buy a washing machine on their behalf, was it purely mercenary on their part -- or is that what friends do for each other in China? (The answer is yes to both.)

Another world from today's China, dominated by sophisticated go-getters (in both Party and corporate circles) comfortable at home or in the world's capitals. The confident and connected people in China stay home, where the opportunity is, rather than seek to emigrate.

Back when even getting to Beijing or Shanghai was an impossible dream to most Chinese. You could pick out the rubes in town from the deep countryside. Chinese needed internal passports (hukou) to travel. Major cities were surrounded by lines on the map beyond which foreigners could not tread -- amplified by warning signs in Russian and English. Other cities were simply off-limits.

Globalization 101

The old cliche was "when America sneezes, the rest of the world comes down with the flu." It appears the hospital slippers may now be on the other foot.

China's (perenially volatile) stockmarkets tumbled some 9% today, leading to a nearly 3.5% drop in the S & P 500, the broadest stock index on the New York exchange. European markets fell apace.

On one level, it was a kneejerk reaction to a sell-off in China after shares had risen 130% over the last year, driven by fears that the Chinese government would impose a capital gains tax or take other measures to rein in financial markets. While US or other international mutual funds have invested in the Chinese market, it remains a highly speculative, high-risk venue. And a highly corrupt marketplace: illegal trading, rampant bribery of government officials to gain key licenses and other operating permits, and myriad other types of skulduggery make stock markets in China anything but fair. So no one should have been overly surprised.

But international markets have become so interconnected and liquid, it's inevitable that an upset in one leads to headaches in the other. What's more, the fall-off in Shanghai and Shenzhen share markets reinforced pre-existing fears that the US economy may not be as strong as market conventional wisdom would have it. Thus the sharp drop in durable goods orders reported by the Commerce Department today spooked investors.

More directly, markets feared that international companies with heavy exposure in China -- especially mining and construction materials-related concerns -- would be hardhit if the Chinese government succeeds in its aim of cooling its redhot economy.